(Bloomberg)—Etsy Inc. kept its word to investors and eked out a small boost in its growth rate by luring more shoppers and getting them to spend more on its site for unique, small-batch goods.
Gross merchandise sales (GMS), the total value of goods that pass through Etsy’s platforms, grew 13.2% to $766.4 million in the third quarter from $677.2 million—bigger than the 12% increase in the previous period—and meeting the company’s August prediction.
Investors watch GMS closely to determine whether Etsy, No. 22 in the Internet Retailer 2017 Top 1000, can expand its marketplace and compete for dollars with much larger retail and e-commerce brands, including Amazon.com Inc. (No. 1).
Etsy had been under pressure from activist investor Black-and-White Capital LP, which urged the Brooklyn-based company to rein in costs, shake up management and consider selling itself. GMS growth had slowed for 11 out of the 12 quarters prior to the three months ended Sept. 30, which some critics have pointed to as a sign that Etsy’s platform—known best for handmade goods like dinosaur-shaped crayons—appealed only to a niche audience for occasional purchases. CEO Josh Silverman, who took over from Chad Dickerson in May, set to work streamlining the business and trying to prove them wrong.
“We have a long list of insights that have come from our buyers and sellers on ways we can improve the product experience, and we’re acting with urgency to get those in the market,” he said Monday during a conference call discussing earnings. These smaller and faster product improvements helped improve the GMS growth rate, along with a spruced up marketing strategy designed to encourage more frequent purchases, he said.
Etsy’s revenue in the quarter, the majority of which is in sales of vendor services, was $106.4 million, the company said in a statement, beating the average analyst estimate of $104.9 million. Shares have jumped 46% this year.
For the fourth quarter, GMS will increase about 13%, chief financial officer Rachel Glaser said on the call. Historically, GMS growth in the fourth quarter has been the weakest, so a stable rate is a sign of progress, she said.
In past years, Etsy would wind down during the holiday season and lose out to other retailers who can offer faster, more reliable shipping and heavier discounts, according to Silverman.
Over the last half year under Silverman’s leadership, Etsy reorganized its structure, cut personnel, and emphasized projects that would get its sellers more purchases. For example, Etsy organized its product categories and marketing to focus on targeting buyers for specific occasions where unique items may be more valued—like weddings. The company is also focused on attracting existing buyers back for additional purchases; Etsy coordinated with sellers to offer its first-ever sale over Labor Day Weekend.
In cost-cutting, Silverman appears to be making progress. Net income in the third quarter was $25.8 million, or 21 cents a share, marking a second straight quarter of profits. Analysts on average expected 8 cents a share.
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